Encana investigating reported accusations of collusion with rival in Michigan

CALGARY – Encana launched an investigation Monday into accusations it colluded with a U.S. rival in order to keep land prices low in Michigan.

“In accordance with Encana’s policies, an investigation of this matter was immediately initiated,” David O’Brien, chairman of Encana’s board of directors, said in an emailed statement.

“Encana therefore will not provide any further information at this time.”

The report by the Reuters news agency alleged Encana (TSX:ECA) and Chesapeake Energy talked about ways to avoid bidding against one another for land leases in Michigan’s promising Collingwood shale region, both at an auction two years ago and in at least nine prospective deals with private landowners.

The report quoted emails it obtained between employees of Encana (TSX:ECA) and Oklahoma-based Chesapeake (NYSE:CHK).

Michigan’s Department of Natural Resources, in consultation with the state’s attorney general, is evaluating the information in the Reuters story, but a formal investigation has not been launched, department spokesman Ed Golder said.

“We are concerned about the integrity of the auction process and about getting fair market value for public assets and public land,” he said in a phone interview.

The U.S. Justice Department declined to comment when reached by The Canadian Press.

Chesapeake spokesman Jim Gipson said Encana and Chesapeake discussed forming an “area of mutual interest” joint venture in Michigan, but no deal was reached.

In an email to The Canadian Press, he also said the two companies did not make any joint bids. He added the company has invested some $400 million to acquire leases in Michigan.

Encana shares closed down nearly four per cent, or 76 cents, at $19.61 on the Toronto Stock Exchange.

Encana spun off its oil assets in late 2009, making it focused almost exclusively on natural gas. The current period of stubbornly low natural gas prices has been particularly trying on Encana, and in order to cope, the company has been selling non-core assets, entering into joint-venture deals and focusing on more lucrative liquids-rich areas.

Encana said last week it would spend an additional $600 million this year to produce natural gas liquids, which more closely track oil prices than dry natural gas prices. Encana shares closed down nearly eight per cent on Thursday when it made that announcement.

Chesapeake, which has been dogged by governance concerns in recent months, saw it shares drop nearly nine per cent on the New York Stock Exchange to US$17.03.

CEO Aubrey McClendon was stripped of his title as chairman in May following shareholder complaints that his personal business interests could conflict with those of the company he runs.

As part of his compensation package, McClendon was allowed to purchase stakes in the oil and gas company’s wells. Investors had long complained about the program and the freedom Chesapeake’s board has allowed him to pursue his personal interests.

Those complaints intensified earlier in the spring following reports that McClendon took out more than $1 billion in loans to pay for his stake in the wells. He got the money from a group to which Chesapeake was negotiating to sell assets. That raised concerns that McClendon’s private dealings with the group could have influenced Chesapeake’s decision to sell those assets.

– with files from The Associated Press